Article - Invest Wisely: A Tale Of Two Retirement Savings Plans

Invest Wisely: A Tale Of Two Retirement Savings Plans

Save for the dream retirement!

Every investor putting money aside for their future retirement savings plan must make wise decisions with their finances today. Time is a diminishing asset, and every year that passes by is another year you won’t earn more money to finance your retirement. That’s an unavoidable fact, and you need to act now in preparation for when you can no longer earn the income you do today.

Yes, you’re going to receive social security, but the reality is that’s only going to replace 35 to 40 cents of every dollar of your income. Your savings might not even be enough because we’re all living longer. If you’re in good health when you retire, you could very well live into your eighties and beyond. It’s possible that you could live 30 years in retirement; the average length of retirement is currently 18 years.

To start making investments for the future, you need a proper financial plan to make the right decisions today. That’s why this post should help kick off your financial planning as a cautionary tale of lost opportunities. Use these stories as a guide to help you set aside a reasonable amount of money that you can afford to save today. Stick to that commitment so that you can build a financial portfolio that will make your dream retirement a reality.

Investor A: a 9 year retirement savings plan

Our first story begins with an investor who started saving when he was only 21 years old. At that time, he began to set aside $100 a month into a retirement savings plan. He stuck to that commitment every month for a total of nine years. When he was 30 years old, he had accumulated a retirement savings balance of $10,800.

He had an 8% return on his investments. He retired from the workforce at the age of 65, which is still very typical for people today. When he retired, he had over $231,000 available in his retirement savings plan. Coupled with the money he’d receive from social security, this was the amount of money he had available to finance his life in retirement.

Investor B: a 35 year retirement savings plan

Our second investor began saving at the age of 30. She also committed to set aside $100 per month every month. However, she intended to stick with that plan every month up until the age that she retired. Like investor A, she retired at the age of 65 with a total of $42,000 set aside in her retirement savings plan.

She also had an 8% return on her investments, increasing the amount of money available for her retirement years. When she left the workforce, she had $215,000 available in her account. This was in addition to the money she would receive through social security to help finance her life in retirement.

What’s the lesson? Don’t give up investment income

What are the key takeaways from our two investors?

  1. Investor A began saving at an early age, but he stopped after only 9 years. As a result, he was only earning interest on money he had saved prior to the age of 30. There were no additional investments on the principal balance with new savings up until the time he retired.
  1. Investor B began saving at the age of 30. She stuck to a monthly commitment right up until the time she retired. The question is: was $215,000 enough for her to live off through her retirement? Had she increased the amount she saved each month, she could have built a much larger retirement savings plan for a more comfortable life.

It should be pointed out that, even with only 9 years of funding, Investor A accumulated more money at retirement age than Investor B. Starting early makes a huge difference. Of course, how much more would Investor A have accumulated had they continued making contributions?

The lesson from both investors is that there were lost opportunities to earn more money and expand the size of the retirement savings portfolios. Life expectancy is very important when planning for retirement, and your financial decisions today must align with those expectations for the future.

Younger generations: start saving today

As with many things these days, there is a bit of a generational gap in regards to retirement savings planning. In a study by the Transamerica Center for Retirement Studies, they analyzed the retirement savings of over 6,000 full-time workers aged 18 and up to determine the amount of savings by generation.

The analysis found that baby boomers had median retirement savings of over $164,000. This isn’t all that surprising given that boomers have been working longer and are closer to retirement age. They need to have investment income for when they do retire so they can live a comfortable life for the rest of their days.

However, the savings dropped significantly with each passing generation. Gen Xers had average savings of $72,000, while millennials have only set aside a median of $37,000. Younger generations do have more time to save for the future but, remember, time is a fleeting asset. Every lost day is a lost opportunity to earn more income on your investments. If you don’t start saving early, consistently, and even with greater frequency as time goes on, you could find yourself in a real bind when the day comes that you’re no longer a full time worker.

Let a financial advisor be your guide.

Making the right decisions is easier when you work with a trusted guide. Mission Street Wealth Planning can show you how to protect and grow your nest egg so you can confidently make the decisions that will allow you to retire comfortably and stay comfortably retired, to build a retirement income that will buy you everything you need for as long as you live, and to transfer your generational wealth to the people you love and the causes you care about.

Hire us today and let us be your guide to your comfortable retirement.